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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-K

 

FOR ANNUAL AND TRANSITION REPORTS

PURSUANT TO SECTIONS 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

(Mark One)



ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2017



TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 1-32381

 

HERBALIFE LTD.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Cayman Islands

 

98-0377871

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

P.O. Box 309GT

Ugland House, South Church Street

Grand Cayman, Cayman Islands

 

(Zip Code)

(Address of Principal Executive Offices)

 

 

(213) 745-0500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Name of Each Exchange on Which Registered

Common Shares, par value $0.001 per share

 

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229,405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer



 

Accelerated filer



 

 

 

 

 

Non-accelerated filer



(Do not check if a smaller reporting company)

Smaller reporting company



 

 

 

 

 

Emerging growth company



 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

There were 87,419,647 common shares outstanding as of February 15, 2018. The aggregate market value of the Registrant’s common shares held by non-affiliates was approximately $1,620 million as of June 30, 2017, based upon the last reported sales price on the New York Stock Exchange on that date of $71.33.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Definitive Proxy Statement to be filed with the Securities and Exchange Commission no later than 120 days after the end of the Registrant’s fiscal year ended December 31, 2017, are incorporated by reference in Part III of this Annual Report on Form 10-K.

 

 

 

 

TABLE OF CONTENTS

 

 

 

 

Page

 

PART I

 

 

 

 

 

Item 1.

 

Business

5

Item 1a.

 

Risk Factors

19

Item 1b.

 

Unresolved Staff Comments

38

Item 2.

 

Properties

38

Item 3.

 

Legal Proceedings

38

Item 4.

 

Mine Safety Disclosure

38

 

 

 

 

PART II

 

 

 

 

 

Item 5.

 

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity Securities

39

Item 6.

 

Selected Financial Data

42

Item 7.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

44

Item 7a.

 

Quantitative and Qualitative Disclosures About Market Risk

70

Item 8.

 

Financial Statements and Supplementary Data

71

Item 9.

 

Changes In and Disagreements With Accountants On Accounting and Financial Disclosure

72

Item 9a.

 

Controls and Procedures

72

Item 9b.

 

Other Information

72

 

 

 

 

PART III

 

 

 

 

 

Item 10.

 

Directors, Executive Officers and Corporate Governance

73

Item 11.

 

Executive Compensation

73

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

73

Item 13.

 

Certain Relationships and Related Transactions, and Director Independence

73

Item 14.

 

Principal Accountant Fees and Services

73

 

 

 

 

PART IV

 

 

 

 

 

Item 15.

 

Exhibits and Financial Statement Schedules

74

Item 16.

 

Form 10-K Summary

124

Signatures

125

 

 

 

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FORWARD-LOOKING STATEMENTS

This document contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Forward-looking statements may include, among other, the words “may,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect,” “anticipate” or any other similar words.

Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties, such as those disclosed or incorporated by reference in our filings with the Securities and Exchange Commission. Important factors that could cause our actual results, performance and achievements, or industry results to differ materially from estimates or projections contained in our forward-looking statements include, among others, the following:

 



our relationship with, and our ability to influence the actions of, our Members;




 



improper action by our employees or Members in violation of applicable law;




 



adverse publicity associated with our products or network marketing organization, including our ability to comfort the marketplace and regulators regarding our compliance with applicable laws;




 



changing consumer preferences and demands;




 



the competitive nature of our business;




 



regulatory matters governing our products, including potential governmental or regulatory actions concerning the safety or efficacy of our products and network marketing program, including the direct selling market in which we operate;




 



legal challenges to our network marketing program;




 



the consent order entered into with the FTC, the effects thereof and any failure to comply therewith;




 



risks associated with operating internationally and the effect of economic factors, including foreign exchange, inflation, disruptions or conflicts with our third party importers, pricing and currency devaluation risks, especially in countries such as Venezuela;




 



uncertainties relating to interpretation and enforcement of legislation in China governing direct selling and anti-pyramiding;




 



our inability to obtain the necessary licenses to expand our direct selling business in China;




 



adverse changes in the Chinese economy;




 



our dependence on increased penetration of existing markets;




 



any material disruption to our business caused by natural disasters, other catastrophic events, acts of war or terrorism, or cyber-security incidents;




 



contractual limitations on our ability to expand our business;




 



our reliance on our information technology infrastructure and outside manufacturers;




 



the sufficiency of our trademarks and other intellectual property rights;




 



product concentration;




 



our reliance upon, or the loss or departure of any member of, our senior management team which could negatively impact our Member relations and operating results;




 



U.S. and foreign laws and regulations applicable to our international operations;




 



uncertainties relating to the United Kingdom’s vote to exit from the European Union;




 



restrictions imposed by covenants in our credit facility;

3

 

 



risks related to the convertible notes;




 



uncertainties relating to the application of transfer pricing, duties, value added taxes, and other tax regulations, and changes thereto;




 



changes in tax laws, treaties or regulations, or their interpretation;




 



taxation relating to our Members;




 



product liability claims;




 



our incorporation under the laws of the Cayman Islands;




 



whether we will purchase any of our shares in the open markets or otherwise; and




 



share price volatility related to, among other things, speculative trading and certain traders shorting our common shares.

Additional factors that could cause actual results to differ materially from our forward-looking statements are set forth in this Annual Report on Form 10-K, including under the heading “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in our Consolidated Financial Statements and the related Notes.

Forward-looking statements in this Annual Report on Form 10-K speak only as of the date hereof, and forward-looking statements in documents attached that are incorporated by reference speak only as of the date of those documents. We do not undertake any obligation to update or release any revisions to any forward-looking statement or to report any events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, except as required by law.

The Company

“We,” “our,” “us,” “Company” and “Herbalife” refer to Herbalife Ltd., a Cayman Islands exempted company incorporated with limited liability, and its subsidiaries. Herbalife Ltd. is a holding company, with substantially all of its assets consisting of the capital stock of its direct and indirectly-owned subsidiaries.

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